Chapter 1 pension schemes — scheme administrators' guidance
If you’re a pension scheme administrator of a public service pension scheme, check how the public service pensions remedy (also known as McCloud) could affect you.
What a Chapter 1 scheme is
A Chapter 1 pension scheme is a public service pension scheme which is:
- a defined benefits scheme
- not a pension scheme for holders of a judicial office
- not a pension scheme for local government workers
A Chapter 1 new scheme started from 1 April 2015 , Chapter 1 legacy schemes started before 1 April 2015.
This guidance also applies to sub schemes that are subject to the splitting of schemes regulations.
Who the remedy applies to
The remedy only applies to members who have remediable service in or were eligible to join a Chapter 1 pension scheme before 31 March 2012, and did not have a gap in an employment or office which is pensionable under a Chapter 1 pension scheme that was longer than 5 years.
Members are affected differently depending on their status within the scheme and whether they are:
- active members
- deferred members
- pensioner members
- deceased members
The remedy period for Chapter 1 schemes is from 1 April 2015 to 31 March 2022, but for agency schemes the remedy period begun on 1 April 2016.
Actions for scheme administrators
You will need to:
- rollback pension scheme members and adjust members’ pension input amount as a result of the rollback
- identify who has retired or died before implementation of the rollback to establish which members are to be given an immediate choice of benefits
- identify the parts of the remedy will apply to those who had an immediate detriment remedy
- identify who had a benefit crystallisation event during the remedy period and determine whether revised benefit crystallisation event statements need to be issued
- identify which members are to be given a deferred choice of benefits
- identify who has already been sent a Pensions Savings Statement during the remedy period and determine whether a revised or new Pensions Savings Statement needs to be issued
- set up on the Secure Data Exchange Service to receive information from HMRC
There may be other tax related issues you need to consider depending on the benefits that are offered under your pension scheme.
Rollback
By 1 October 2023, you must rollback all pension scheme members who had pensionable service up to 31 March 2022 under the Chapter 1 new scheme .
You’ll treat the members as always having been within the Chapter 1 legacy scheme when the members’ pensionable service is rolled back. Any pensionable service, up to and including 31 March 2022, will be treated as never having been in the Chapter 1 new scheme.
The Chapter 1 legacy scheme administrator will be responsible for any tax adjustments, both increases and decreases, for the remedy period for annual allowance and lifetime allowance.
Any additional voluntary contributions paid and transfers received into the Chapter 1 new scheme will remain within the Chapter 1 new scheme, unless specific provision is made in the scheme rules. However, the scheme regulations allow you to pay an amount reflecting the value of the additional voluntary contributions, minus an amount equivalent to tax relief, as compensation or to reconstruct the rights in the legacy scheme.
Any pensionable service from 1 April 2022, including that of members who were originally in the Chapter 1 legacy scheme, will remain within the Chapter 1 new scheme.
Immediate choice
You’ll need to give pensioner members an immediate choice as to whether they want to receive new scheme benefits.
For any members who are deceased, their beneficiaries will need to be given an immediate choice as to whether they wish to receive new scheme benefits.
The status of a member is based on their position on 30 September 2023. This applies to all pensioners, or members who died, before 1 October 2023, regardless of if they were rolled back.
Choice to receive legacy benefits
If the member, or beneficiary, wants to receive legacy benefits, they do not need to make an election. If no election is made, and you haven’t decided to change the benefits payable, they’ll receive legacy benefits. They can choose legacy benefits before the end of the election period if the scheme rules allow.
Election to receive new scheme benefits
If the member, or beneficiary, wants to receive new scheme benefits, they’ll need to make their election within 1 year of receiving the remediable service statement. Where a new scheme benefits election is made, this changes the amount of the benefits, retrospectively, from immediately prior to them becoming entitled to their pension, or if deceased, immediately prior to their death.
Effect of the immediate choice
Where protected and taper-protected members make a new scheme benefits election, the amount of benefits due under the Chapter 1 legacy scheme will change from the point the new scheme benefits election takes effect which may affect tax charges and benefits already paid.
For unprotected members, their benefit entitlement in respect of the remedy period remains unchanged by making a new scheme benefit election but the paid benefits will be provided by the Chapter 1 legacy scheme.
For any unprotected or taper-protected members who started to receive pension benefits before the rollback on 1 October 2023, the benefits are to be treated as not having been paid by the Chapter 1 new scheme, but having been paid by the Chapter 1 legacy scheme. This means the legacy scheme is now responsible, and classed as always having been responsible, for the tax and reporting requirements.
Deferred choice
You’ll need to give active and deferred members a deferred choice as to whether they want to receive new scheme benefits when they request their pension benefits.
This status of a member is based on their position on 30 September 2023. This applies to all active or deferred members before 1 October 2023, regardless of if they were rolled back.
Choice to receive legacy benefits
If an active or deferred member wants to receive legacy benefits, they do not need to make an election. If no election is made, and you haven’t decided to change the benefits payable, they’ll receive legacy benefits. They can choose legacy benefits before the end of the election period if the scheme rules allow.
Election to receive new scheme benefits
If an active or deferred member wants to receive new scheme benefits, they will need to make an election within the election period. The length of the election period will be set out in the scheme rules, this should be no longer than 1 year. Where a new scheme benefits election is made, this changes the amount of the benefits due.
Remediable service statements
You’ll need to provide every affected member with a remediable service statement within 18 months of the date of rollback. The statement will need to provide the member, or beneficiary, with details of the benefits during the remedy period calculated on the basis of both the Chapter 1 legacy and Chapter 1 new schemes.
For pensioner or deceased members, the member, or beneficiary, then has a period of one year from when the remediable service statement is provided to elect for benefits to be paid on a Chapter 1 new scheme basis.
You will need to provide active members with a remediable service statement annually. . Deferred members will only need to be provided with a remediable service statement when requested, this can only be requested once a year.
If the Chapter 1 new scheme administrator has failed to carry out the appropriate reporting requirements, or to pay the required annual allowance or lifetime allowance charges during the remedy period, the Chapter 1 legacy scheme administrator becomes responsible for that failure and correcting it.
HMRC will continue to pursue the Chapter 1 new scheme administrator, if it is not possible to identify that the Chapter 1 legacy scheme administrator is liable for the tax. In that case the Chapter 1 new scheme administrator will remain responsible for paying the tax and the reporting requirements.
Impact on annual allowance and lifetime allowance tax charges
Where, as a result of the remedy, a member has a new or additional annual allowance or lifetime allowance charge, you must report this on the Accounting for Tax return and pay the charge.
If there is an increase in the amount of lifetime allowance used, you will need to send an revised benefit crystallisation event statement to the member.
You must use the lifetime allowance that was applicable at the time of the original benefit crystallisation event.
Where a member has an increased benefit crystallisation event, there may be cases where Chapter 1 scheme administrators become liable for lifetime allowance charge which arose under a private sector pension scheme.
Pensions savings statements
As a Chapter 1 new scheme administrator you’ll need to identify who has already been sent a pensions savings statement during the remedy period. You will need to send a revised statement detailing the revised pension input amounts.
You will need to issue a new pension savings statement for any members who were not originally issued with a pensions savings statement, but are now due to receive one.
The opening value for the pension input amount for the 2022 to 2023 tax year, under a Chapter 1 new scheme will change for affected members, who had service up to 31 March 2022 rolled back to their legacy scheme.
The usual deadline of 6 October 2023 will be extended to 6 October 2024 for the issue of the pensions savings statements for the 2022 to 2023 tax year, for impacted members. It can be issued earlier for both Chapter 1 legacy and Chapter 1 new schemes.
You can read further guidance on how the rollback affects pension input amounts.
Immediate Detriment
A Chapter 1 scheme may make changes for members who have received an immediate detriment remedy, including applying specific sections of the public service pensions remedy.
This means that tax legislation that applies to the public service pensions remedy does not apply to members who have received an immediate detriment remedy unless scheme regulations apply parts of the public service pensions remedy to those members.
Compensation
If a member has previously had either, or both a lifetime allowance or an annual allowance charge between and including the tax years 2015 to 2016 and 2018 to 2019, this may have changed in value. They will not be able to receive a refund of those overpaid charges. Where the charge has reduced, they will be able to apply for compensation. Members will be able to use the calculate your public service pension adjustment service to work out any changes in their tax charges for these years. It will be up to scheme managers to decide whether to pay compensation, the amount of that compensation and to make the payments.
Tax Administration Framework
There may be a change in the value of previous charges if, between and including the 2019 to 2020 and 2022 to 2023 tax years, a member had:
- a lifetime allowance charge
- a annual allowance charge
- unauthorised payments charges
Members may have to pay a new or additional tax charge or may be able to claim a refund of tax already paid. This may mean you have to provide revised pensions savings statements, as detailed in the pension savings statements section on this page. Members will be able to use the ‘Calculate your public service pension adjustment’ service to work out any changes in their tax charges for these years.
How voluntary contributions into a new scheme are affected
In most cases, any voluntary contributions made into a new scheme during the remedy period will not be rolled back automatically. Members will have a choice as to how their contributions are treated. The options for how voluntary contributions are treated are set out in the scheme rules, you will need to let the affected members know what their options are. You can find out more on the voluntary contributions guidance page.
Pension sharing on divorce (or dissolution of civil partnership)
Pension debit members
Where a pension sharing order that includes rights in respect of remediable service, the amount of the pension debit must reflect the member’s choice of legacy or new scheme benefits.
Chapter 1 new scheme administrators will need to adjust any pension debits that have already been applied as a result of the rollback. This may result in the pension debit member’s entitlement increasing or decreasing.
Chapter 1 legacy scheme administrators will need to adjust any pension debits if a new scheme benefits election is made. This may result in the pension debit member’s entitlement increasing or decreasing.
Pension credit members
Where a pension sharing order that includes pension rights in respect of remediable service, the pension credit member will receive pension rights based on the higher of the cash equivalent transfer value for either legacy or new scheme benefit accrual.
Where a pension sharing order for a Chapter 1 scheme is made before 1 October 2023, the amount of the pension credit may change as a result of the remedy. Where the amount changes, in most cases this will result in an increase to the pension entitlement.
However, in some cases where the connected pension debit member is a taper-protected member, the pension credit entitlement may reduce. If this occurs after the pension credit was put into payment, the original benefit entitlement was correct and is not retrospectively changed. This means the original benefit crystallisation events were correct and the authorised status of the benefits that were paid before the pension credit was adjusted remains the same.
Transfers
Any transfers that were accepted into the Chapter 1 new scheme during the remedy period will not move with the standard pension service when the rollback is implemented. In most cases, depending on scheme rules, transferred amounts will remain within the new scheme.
Protected pension age
Where a member had a protected pension age within the Chapter 1 scheme and began to receive their benefits during the remedy period, the rollback and any subsequent election of new scheme benefits may impact on their protected pension age. Further guidance can be found under the benefits page of public service pensions remedy guidance.
If a member opted out of their pension
Where a member has opted out of their pension during the remedy period, they can ask to opt back into the legacy scheme. The conditions for this process will be set out by scheme regulations.
Partnership pension account
If an individual has opted to be a member of the partnership pension account instead of a Chapter 1 scheme, a condition for making an election will be that any uncrystallised pension rights under the partnership pension account, that accrued during the remedy period, are to be transferred to the Chapter 1 legacy scheme.
If all or part of the member’s partnership pension account rights, in respect of the remedy period, have been crystallised, the rights granted under the Chapter 1 legacy scheme will be adjusted as not all of the partnership pension account rights will be transferred.
The transfer from the partnership pension account to the Chapter 1 legacy scheme is a recognised transfer. The transfer does not change the pension input amounts.